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2015 (6) TMI 91 - ITAT HYDERABAD

2015 (6) TMI 91 - ITAT HYDERABAD - TMI - Revision u/s 263 - AO failed to disallow the interest debited to the P&L a/c as as there was no income from business, the expenditure debited for ₹ 40,33,313 needs to be disallowed - Held that:- The issue has been subjected to scrutiny by the AO as it is part of the reasons recorded for reopening the completed assessment u/s 143(3) of the Act. The AO had come to the conclusion and gave the finding for the set off of interest payment of ₹ 40,33 .....

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COURT).

Further, when two views are possible and when the AO takes one of the two views permissible in law to which the Commissioner does not agree with, it cannot be treated as erroneous and prejudicial to the interests of the Revenue as held by the decisions (i) CIT vs. Max India Ltd (2007 (11) TMI 12 - Supreme Court of India) and (ii) Malabar Industries Company Ltd (2000 (2) TMI 10 - SUPREME Court). Hence, the revisionary jurisdiction assumed by the CIT (A) is invalid.

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3-2015 - Shri B. Ramakotaiah and Smt.Asha Vijayaraghavan JJ. For the Appellant : Shri K.C. Devdas, C A For theRespondent : Smt. G. Aparna Rao, (DR) ORDER Per Smt. Asha Vijayaraghavan, J.M. The appeal of the assessee is directed against the order of the CIT (Central), Hyderabad dated, 19.02.2013 passed for A.Y 2003-04 u/s 143(3) r.w.s. 147 of the I.T. Act. 2. Briefly stated, the assessee company, M/s Hastha Agro-tech (P) Ltd filed its return of income for the A.Y 2003-04 on 28.11.2003 declaring a .....

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nterest income were earned on fixed deposits. The CIT held that during financial year 2002-03 relevant to the A.Y 2003-04, the assessee earned no income from the business of agricultural operations. However, expenditure of ₹ 40,33,313 has been debited to P&L a/c which includes interest paid to others of ₹ 40.00 lakhs. The CIT opined that as there was no income from business, the expenditure debited for ₹ 40,33,313 needs to be disallowed. The CIT held that since the interest .....

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for revision u/s 263 of the I.T. Act, 1961. 4. Aggrieved, the assessee is in appeal before us against the order passed by the CIT u/s 263. The ld Counsel for the assessee reiterated the submissions made in the reply to the show cause notice as follows. 3……… that the AO completed the assessment u/s 143(3) r.w.s. 147 duly verifying the facts submitted by the assessee and accepted the income returned. Hence it is beyond the purview of supervisory power to invoke the provisions .....

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and received interest income. Therefore, interest paid to M/s. Maytas is an expenditure incurred to earn the interest income under consideration . 5. The ld DR stated that from the records it was found that during the financial year 2002-03, there was no business operation. Further, the assessee company itself accepted that the purpose for which the borrowal was obtained from M/s Maytas Infra Ltd was not fulfilled. Moreover, the investigations by investigation agencies revealed that the assessee .....

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passed by the AO dated 8.12.2010 for A.Y 2003-04 is erroneous and prejudicial to the interests of the Revenue and hence a revision u/s 263 is to be made. 6. We have heard both the parties and perused the material on record. Further, the assessment has been reopened by the AO stating as follows: M/s. Hastha Agro Tech Pvt. Ltd, PAN -AACCR 4354B has filed its return of income for the A.Y 2003-04 on 28.11.2003 declaring income of ₹ 5,91,630. The assessment u/s 143(3) was completed on 27.3.2006 .....

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investigations and it came to light that Shri B. Ramalinga Raju and his family members have floated numerous front companies for the purpose of routing the funds and to acquire vast tracts of lands in and around Hyderabad in the names of entities like the assessee company. The control and management of these companies was with Shri B. Ramalinga Raju and in particular through Shri B. Suryanarayana Raju his brother. The controlling directors or share holders of these front companies are the family .....

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was taken to artificially shore up the performance of the company in line with the market expectations. The assessee company is one of the front companies. As per the return of income and its enclosed annual report for the financial year 2002-03, Shri B. Suryanarayana Raju brother of Sri Ramalinga Raju was Director of the assessee company. It is further observed that monies have originated from the family members and have been transferred in a circuitous and complex manner through the front comp .....

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ssee company by roughing the monies in a circuitous and complex set of transactions between the group individuals/entities has been revealed during the investigations by the investigating agencies. Further the assessee has shown interest income of ₹ 46,28,979 and has debited business expenditure of ₹ 40,33,413. Since the company is an agricultural company and no business activities have yet started, the interest income earned cannot be treated as income earned from business activitie .....

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eable to tax to the tune of at least ₹ 40,37,349 given the volume of the transactions as stated above, within the meaning of section 147 r.w.s. 149 of the I.T. Act . 7. Hence we find that the issue has been subjected to scrutiny by the AO as it is part of the reasons recorded for reopening the completed assessment u/s 143(3) of the Act. The AO had come to the conclusion and gave the finding for the set off of interest payment of ₹ 40,33,313 from out of the interest income of ₹ .....

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s held in the case of CIT vs. Jawahar Bhattacharjee (2012), 341 ITR 434 (Gauhati High Court Full Bench). 8. In the case of CIT vs. Ashish Rajpal (320 ITR 674) (Delhi H.C) and CIT vs. Vikash Polymers (194 Taxman 57 (Delhi) (H.C), it has been held that if the AO allows the claim, on being satisfied with the explanation of assessee, on an inquiry made during the course of assessment proceedings, the decision of the AO cannot be held to be erroneous, on ground that there is no elaborate discussion i .....

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ny Ltd (243 ITR 83). Hence, the revisionary jurisdiction assumed by the CIT (A) is invalid. 10. Further, on merits the order of the CIT setting aside with a direction to re-compute the income of the assessee company after disallowing the expenditure claimed is incorrect. The CIT has observed that as the assessee company has not started its business operations, interest income earned by the company has to be treated as income from other sources and no expenditure is allowable against it in view o .....

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xpenditure as business expenditure. We rely on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Taj International Jewellers (335 ITR 144 (Delhi) where the facts were that: the assessee an exporter of jewellery, borrowed money and converted it into fixed deposits. There was a difference between the rate of interest in India and the interest rate outside India which was payable at the LIBOR rate (London Interbank Offered Rate). Because of this peculiar nature of the transact .....

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